What Do I Do With Two Houses?

So you might be asking, "Where did you get the money for the new house when you already own a house?"  Well, there are a lot of factors in play here.  I have always been a saver. I love the thrill of watching my savings account grow month after month.  I have always had a knack for finding how to make it all work AND still manage to save like a fiend.  BJ had 2 year stint in the Peace Corps before we were married, and I vowed to have enough money for a down payment for a house for us when he returned.  When he returned I had amassed a good amount of money for a 27 year old in the job that I was in, and we bought our first house when we got married a year later. We still didn't have 20% to put down, but it was enough to get us into a house that we both liked.

Over the next few years BJ ended up in law school, I switched jobs, and we had a baby.  Law school, as many of you know, is not a sound financial investment anymore.  You are damn lucky to find a job afterwards that pays a salary equivalent to the amount that each year of law school costs.  BJ found a job, though we are not talking six figures by any means.  We have a nice life.  A very nice life.  We buy what we need with cash (or credit cards to get the points) and we only maintain our student loan debt and mortgage.  No car payments, no credit card debt, no extra personal lines of credit.  There are no extravagant purchases by any means.  But we do not starve.

By switching jobs I was able to move myself into a position where we had the potential to receive bonuses each year in the amount of 10% of our salary.  Its not guaranteed, but I have received the bonus 2 out of the 3 years I have been with my company.  This helps.  A lot.

Having a baby has not been a huge financial burden (yet) that so many people say it is.  I guess we don't try to keep up with the Jones.  Amelia is the first grandchild for my parents so there is a tiny bit of spoiling that goes on.  But that is mostly in the way of my mom using her retail discount from the department store job that she retired from after 20 years to baby sit Amelia while I work.  She volunteered to retire.  I did not even ask.   This is one of the amazing perks that we are spoiled with.  The other is that on a monthly basis my mom cannot wait to take Amelia back to the department store to show her off and buy her little outfits.  My mom has a knack for shopping on a budget, and that retiree discount doens't hurt either!  I do not fight it because it makes them both happy.  But my mom does not buy her unnecessary toys and expensive gifts.  That would be setting her up for a life that is unrealistic for us to maintain.  I just don't want that for our daughter either.  I want her to be showered with experiences rather then plastic toys.

Back to the down payment.  When our offer was accepted on the new house I almost crapped my pants because my initial thought was, "What do I do with two houses?"  How was I supposed to pay two mortgages?  We decided to rent our house after talking it over with an agent and realizing that no matter what, we just couldn't get what we needed to in order to ensure we didn't lose money on the sale of the house. We also needed to sell quickly to avoid having two mortgages, and we just didn't think that could happen.  We put our house on the rental market just slightly above what our mortgage & escrow account payment was.  After 2 months we lowered by $100 and listed our own ad on Craigslist.  A note to anyone renting out their house:  avoid selling your soul to an agent.  Just get on Craigslist.  We found a great family to rent our home within a week or two after listing our own ad.  But because we were originally listed with the agent we still had to pay them their fee.  What a crock.  So with the renters locked in, I now knew how much I needed to pull from various sources in order to get our down payment together.

I literally had a dozen choices of how to pull this money together.  Not to say I had a lot of money.  I mean I had it in a dozen places.  $2,000 in failed stocks, $1,500 in a life insurance policy, $250 in savings bonds from great grandma in 1982.  The great thing was we were now locked in to the FHA loan which only required 3.5% down.  Can you imagine that during one of the most difficult times in recent history for the housing market, we were basically handed the amount of money we requested at a 3.875% interest rate and only had to put 3.5% down?  But 3.5% is still a lot of money.  I decided to make sure we were "liquid" enough (look at me using fun financial terms!) by cashing in some failing stocks.  I didn't mind taking the financial loss since I only put the money in the stocks when I was in my early 20's to try out the market.  I only used money I didn't need in the stock market.  I had a couple of successful stocks that I also cashed in.  The gains and losses will probably just cancel themselves out at tax time.  I do not plan on doing my own taxes this year.  They got a little more complicated then I can handle on Turbo Tax this year.  Much of the money really was just in savings over the years.  One thing that I never touched was Amelia's college fund.  We had been saving for her since we starting trying to have a baby.  Let's just say she has a great head start considering she took her sweet ass time getting here.  But she was worth the wait.

Once I pulled all the money into one bank account knowing that it would all be wiped out with one check for settlement, I started to shed a little tear for all of the hard work that it took for me to accumulate those pennies.  Each and every one of them came from BJ's first paying job after law school, my bonus at work, my attempt at playing the stock market, and even cashing in life insurance policies.  But moving Amelia out of the city was the best life insurance policy I ever could have invested in. 

Going in for the Kill

Now we never thought that we would get this house for the price we wanted to pay for it.  The original asking price when the house first went on the market was around $450,000.  That was almost double our price point.  As months ticked by, however, the house was shown to hundreds of people who all loved the potential, but not the price.  They didn't want to take on the structural issues, the roof, the electrical revamp, and the lack of air conditioning.  Truthfully, neither did I.  I never wanted a project house.  I though that if I was going to stretch my budget, it would be to pay for renovations that someone else had already done for me.

BJ and I went back and forth with structural engineers, family friends, general contractors, all giving us prices of things that had to happen during the first phase of the project.  We narrowed it down to 3 lists:  Must Haves, Wish List, If We Win the Lottery.  The must haves were no glitz and glam.  My dream closet would have to wait until we won the lottery apparently.  We had to focus on getting realistic quotes from actual contractors to know exactly how much we were going to need to budget, and also, how much we could afford to offer for the house.

By this time we had already gotten involved with our mortgage guy to discuss the FHA 203k loan program.  I am not FHA expert, but essentially it is a loan that gets wrapped right into your mortgage from the bank.  The funds from the loan go towards making renovations and other major upgrades such as those we are making.  It is highly regulated by a loan supervisor and subject to a home inspection every single time the contractor submits to take his "draw", (a.k.a get paid).  The process has been pretty easy to navigate so far, but FHA does have a lot of regulations that you must adhere to in order to pass inspection.

Once all the numbers came in, this is what we had in front of us to work with:

• Roof fixes -anywhere from $3,000-$30,000.  Thank you for that narrow range.
• Structural - Approx. $10,000.  I asked you for real numbers here, people.
• Install central air and convert from oil to natural gas-$25,000
• Electrical overhaul-$20,000
• Remove plaster on 3rd floor, insulate and replace with drywall-$8000
• New windows (as many as we can with budget) -$10,000
• Kitchen-$10,000
• Bathrooms-$5,000 x2
• FHA requirements for asbestos and lead paint abatement: $2,000

GULP.  So with that I could offer the sellers $100,000 for the house.  No, just kidding.  But that is what I wanted to offer them.

We had conference call after conference call with our mortgage guy to go over numbers.  He gave us monthly estimated payments based on different offer prices and interest rates.  He calculated PMI and all kinds of other acronyms that I cannot remember.  But in the end I looked at my husband who was drooling over this house and I said, "We can do this."

We devised a strategy for our low ball offer that we were going to throw at the sellers.  It consisted of predicting what they would counter with, and then what we would finally end up buying the house for.  Our initial offer was $35,000 under asking price.  Yeah, we went that low.  The intention was that we would eventually negotiate to about $10,000 under asking price.  We put in contentions for the sale or rental of our existing home and for settlement to be 90 days from the date of the offer.

On March 4, 2012, we submitted our offer.  We would later find out that another person who had not been working with a specific agent was also feverishly trying to submit an offer that day.  Unfortunately for him, by the time he got in touch with someone to write up the offer, the seller had already negotiated a counter offer to us.  Sucks to be him.

When we got the counter back we thought they forgot to make changes.  Our offer price was accepted.  The only counter was that settlement happen in 60 days and we remove the contingency to sell or rent our house.  Holy crap!  They accepted our offer price!